By Daniel Lewis,
/ Advertising Disclosure

Starting a small business is not easy, and a restaurant is certainly not an exception. Moreover, keeping a restaurant business alive is also an arduous task once started. There is an infinite number of things that could go wrong and no small number of items to double-check. These items include your business plan, your web presence, social media, licenses, employees, accounting, inventory, brand name, utilities, equipment, regulatory compliance, marketing, design, food storage, location, food quality, business registration, payment processing, parking space, the list goes on and on. Before you can consider any of the above you will need proper financing.

To an extent, the available cash flow will determine how well you can perform each of the above items. Additionally, it will help to offset any surprise attacks that will come up. No matter how exact you make your budget, there will always be curveballs that threaten your business. Which is why it is imperative not just to cover costs, but to have significant amounts of available cash reserves for the inevitable upsets. Choosing the right form of finance is essential for the success of your business.

5 Best Business Loans for Restaurant Owners

Restaurant owners can benefit a lot from online lenders as opposed to banks and larger financial institutions. The reason for this is that there are too much bureaucracy and often inflexibility with such lenders.

With an online business model, you can gain access to finance within 24 hours while supplying minimal documentation. The line of credit can be very useful for restaurant owners, often taken in tandem with a term loan or equipment financing loan. The term loan can be used for upfront costs of equipment, insurance, and rental along with operational expenses. The line of credit can be used on an as-needed basis when unforeseen events arise.

Most online lenders will offer the line of credit as well as the term loan. Make sure you have enough to keep you covered. The issue is that you often need to be in business first in order to qualify for the loan. This is at odds with the idea of having the capital upfront before you start. Regardless, the best lenders for restaurant owners include:

LoanBuilder (by PayPal)

PayPal Loanbuilder has the lowest requirements among online lenders. Applicants will need 9 months in business and a minimum credit score of 540. The online questionnaire only takes 5-10 minutes to fulfill. The necessary documents vary, though you may only need to supply 4 months of recent bank statements. The funding expert can give you more details. Funds can be transferred within one business day.


The requirements to satisfy OnDeck are very high in comparison to other lenders. The small business loan market was getting a little saturated, so OnDeck decided to target a different class of medium-sized businesses as opposed to small businesses. Over the past 12 months, they have changed their minimal requirements multiple times. As of right now, the minimum requirements are 3 years in business, a 600 FICO score, and $100,000 in annual revenue. They are more of a higher quality lender providing exceptional customer support, offering lower rates, but qualification is tougher. You won’t get financing here without 3 years of establishment, rendering them ineffective for new restaurant owners.


Lending Club is a peer to peer crowdfunding marketplace where loans are funded by various lenders in $25 increments. If you are looking for $50,000 then various lenders will come together to provide you with the funding. Minimum requirements are $100,000 in annual revenue and a 600 credit score, similar to OnDeck(minus the 3 year time in business stipulation).


SmartBiz is the world’s number one facilitator of SBA(7)(a) small business loans and bank loans under $350,000. For a fee, you can cut down on the significant hassle associated with going to a bank and trying to figure it all out. 90% of SmartBiz recommendations get funded. Applicants can fill out a form to see if they pre-qualify. When they have completed the form, Smartbiz will generate the available options (SBA, bank loan, or a customized loan option). Generally, the SBA(7)(a) and bank loan requires high annual revenue and an impressive credit score, as well as a long time in business.


Kabbage only offers the line of credit as opposed to the term loan. To qualify for a loan with Kabbage, you will need at least $50,000 in annual revenue and 12 months in business. There is no minimum credit stipulation. If you are already open for more than 12 months, these requirements should be easy to satisfy. The technology is very intuitive and you will also get a business credit card to easily draw on the line of credit, as you need it. The beauty of the Kabbage application process is that it is 100% automated, with almost no interaction with representatives. Apply and withdraw, as long as you are eligible.

The first step to succeeding in the hospitality sector is to have the required capital. If you don’t have enough cash to keep going, the restaurant will fail. It is not a constant business model and many things can interrupt consumer preferences. Capital is the first step and the most important of all insurance policies.

So do your research into the financial option that best suits who you are and what you intend to achieve in the long-term. A mistake here could destroy your restaurant business.

How to Apply for a Small Business Loan as a Restaurant Owner?

Applying for a small business loan as a restaurant owner is similar to the process for small business owners everywhere. But because restaurant owners tend to have tight profit margins and can find it harder to get finance, it’s often useful to go the extra mile and make sure that your restaurant is exceptionally streamlined and that the financials look superb.

Organization and diligence are critical to getting a small business loan with a traditional lender. Before you think about applying for a loan, you might want to consider:

  1. Ensuring that your credit score is at least 600, preferably 680.
  2. Ensuring that your annual revenue is at least $100,000.
  3. Ensuring that your legal and financial documents are in order.

These are the basics. If you want to increase your credit score, the most important thing you can do is simply to pay back all of your bills on time and to ensure you don’t max out your credit cards (a bad sign to credit institutions). Your rating will rise with time, as long as you are responsible for the repayment schedule.

Annual revenue is something that all business owners must try to increase as much as possible (in tandem with reducing overheads and increasing customer satisfaction). But $100,000 tends to be something of a minimum threshold to get better rates. You can still get loans with smaller total revenue, but the rates will be a little steeper.

The recurring issue is that many lenders required you to have a year in business with annual revenue between $50,000 – $100,000 to qualify for funding. But restaurant owners need the capital upfront for the first few months, so it is something of a catch-22.

If you are going for the SBA (7)(a) application or similar, such as a standard bank term loan, then you will need to supply an enormous amount of documentation. The best way to tackle this is to use technology to streamline all aspects of the business. Your payroll and legal documents should ideally be stored on a (secure) online system so you don’t have to chase everything. This will make the application process run more smoothly.

Restaurant Insights

It may be difficult to start a restaurant, but it is no more difficult than starting any other business venture. There are many myths online about how difficult the restaurant industry can be, with many accepted but invalid statistics. This is simply not the case, and the statistics show a lower failure rate in the restaurant sector as compared to other businesses. A very careful and meticulous study on 81,000 full-service restaurants from 1992-2011 using official data found that the failure rate of restaurants in their first year was 17%. The idea that 90% of restaurants fail in their first year is no more than a myth.

The data also shows that the rate of failure is actually on the decline, and more or less consistent across all industries. What is true is that banks seem to be averse to restaurant startup funding, and that capital is essential to the success of any business venture. While every step in starting and maintaining a business is crucial, you will need the right levels of finance to perform the other functions effectively, from staffing to food quality. Below are some strategies to survive the first 3 years in business so that you don’t fall short of finances.

Strategies for the First Three in Business – The Risk Zone

While the 90% statistic might be a myth, the fact is that restaurant owners still have it tough. A more recent study indicated that the rate of failure for restaurant owners is 26% in the first year, 19% in the second year, and 14% in the third year. This amounts to a total of 59% in the first 3 years of business. An even more interesting statistic is that 35% of first-time restaurant owners failed in their first year.

So, you have to have the capital, expertise, and determination to make it past the 3-year mark, where more than half of your competitors will sink. But to compound the problem even further, COVID-19 is ensuring that restaurant owners are having an even more difficult time. More on this is elaborated further below, but many restaurants have already closed due to such difficulties.

In order to survive the first three years, one of the first things you need to do is ensure that you have an appropriate budget made out. Every small business owner gets hit with unforeseen expenses. And that is on the top of the extensive ‘seen’ expenses. Wages, taxes, rent, utilities, payroll, legal, accountancy, ovens, design, wages, food, cleaning, the list goes on and on. To top it all off, you can pay for all this – and have no customers!

Your marketing has to be top-notch, and you have to go the extra mile to make sure that customers are enticed to come to your shop. You can cut costs as much as you want, but you need to get people to your restaurant regularly. The only way to do this is to get creative and ask yourself what customers are looking for. Give them discounts, have large signs, make fliers, but above all else, work on getting people in the door.

Some of the most common reasons for restaurant failure include:

  1. Wrong location (often unrepairable).
  2. Insufficient Start-Up Funds.
  3. Poor marketing and promotions.
  4. Poor inventory and staff management.

There are many other reasons for restaurant failure, but they fall far short of those listed above. Make sure you have capital, a good location, and a focus on exceptional marketing and good staff inventory management. These are the most basic of all ‘ingredients’.

A lot will depend on the type of restaurant you are going to be opening. But you need at least 12 months of operational funds to see you through in the beginning. There is too much uncertainty in the industry.

And remember, you are not exactly engaging in a unique or a ‘novel’ idea, regardless of your creativity. There are millions of restaurants worldwide and food outlets everywhere. If you want to succeed, you really need to get organized and plan ahead.

Restaurant Industry – Key statistics

Before embarking on any business venture, you need to understand key fundamentals of the industry itself. When reading up on statistics, it is important to only focus on statistics compared to your area. For example, even if the USA is overpopulated with high-quality steakhouses, it is only relevant that there is no high-quality steakhouse in your area. In other words, you need relevant data, not simply information about the industry. There is a significant difference. The following are several things to pay attention to when considering opening up or improving a restaurant.


As in all industries, you need to ask yourself if being a restaurant owner is what you really want to do and if you can see yourself doing it for the next 10 years and beyond. It would be a mistake to think that you can start a small restaurant and hire a manager to take care of all the details. You will need to be passionate about your idea as this will give you the energy to surmount the many challenges owning a restaurant will bring.

Find the right funding for your restaurant

3 Loan Application Tips for Restaurant Owners

When you are applying for a loan from a lender, there are several things you can do to maximize your chances of success. Because it is often more difficult to achieve a loan for a restaurant compared to other small business ventures, you really need to do your homework. While the exact requirements may be specific to the lender, there are some things to consider.

Most institutions will need an idea of what kind of business you are running, and what separates it from the rest. Because there are few barriers to entry for setting up a restaurant, lenders receive requests all the time from new restaurants regarding loans. You will only secure your loan if your business stands out from the rest and is distinct with a good track record. You will also need to outline exactly what you need the money for and how you plan to spend it, along with showing how your business is set to grow in the next 5 years or so. Additionally, the longer you have been in business, the better in the eyes of the lender.

Financial documents will also be looked at in relation to the company itself, as this will give lenders an idea of how the financial sides of things are doing and how well money is managed in the business itself. Make sure that all of your financial documents are up to date and accurate. Know your balance sheet inside out so you can make a strong case as to why you need the loan.

The Best ways to gain Finance for your Restaurant

How well you as an individual manage your finances will also be taken into consideration. You can have the best business plan and fundamentals, but the credit check could mean that your application does not proceed any further. Despite this, there are some lenders who will analyze your restaurant solely on the business itself, so all is not lost. A credit score of 600 and above is usually needed for a lender who does place a significant emphasis on credit ratings. When applying for the loan, make sure to do the following three things:

  1. Have a business plan written out with clearly defined milestones to be reached. An unclear picture of future success will damage your chances.
  2. Be coherent. Be able to answer any question about any aspect of your business from licenses, food quality, location, design, software, and financing. Any ambiguity regarding these questions can also damage your application.
  3. Show that you are passionate about the venture. Make sure you have some personal money invested into the business as it will show the lender that you believe in the business and will do what it takes to make it work.

Before applying for a loan, make sure you have asked yourself when you need the money, why you need the money, are you ready to apply and is this loan the right one for you. There are several types of financing available.

Different Types of Loan for Restaurants

Before you begin looking for finance for your new restaurant, it helps to understand that there are 3 primary types of small business loans available to you, with an additional type of financing known as a Merchant Cash Advance (MCA). Each form of financing will have distinct advantages and disadvantages.

Lines of Credit Are known for being the most flexible types of loans available. You can choose from a range of funds at any time you want. The only real requirement for a line of credit is that you do not exceed the maximum limit. Borrowers do not have to use the maximum amount of credit and only pay interest on the amount that they withdraw. Burrowers can spend the money, repay it, and withdraw the maximum amount again. For this reason, LOCs are often called revolving accounts. Most LOCs do not need collateral.

Inventory/Equipment financing – Are loans designed specifically for the purposes of buying equipment or inventory for your business. This is important for restaurant owners. The machines needed for a top-quality restaurant can be very expensive. And these are the type of investments that pay off over the long run and really deliver quality to customers. The inventory/equipment serves as the collateral for your loan. Small businesses need all the cash they can get and spend $20,000 upfront on equipment is simply not workable.

Working Capital Loans – Term loans are the most common loans to cover everyday expenses of running a company which includes wages, utilities, and the general short-term operational costs of running a company. Most companies do not have a steady stream of income throughout the year as all industries are cyclical. In these times you can use the working capital loan. Working capital loans are quick and do not require any equity, so owners will retain full control of their company. However, the rates can be high, and the loan is often tied to the owners’ credit rating. Most working capital loans will need collateral.

Merchant Cash Advance – A Merchant Cash Advance (MCA) is a lump sum payment to a borrower. The borrower uses a percentage of credit/debit card sales to repay the debt. These are not loans but are a popular form of finance. Because they are not loans they are not regulated and often charge more to customers, so tread with caution. Nevertheless, MCAs do have their advantages.

The SBA Loan

There are several types of financing options but the above four are the main categories. Another type of loan to be aware of is the Small Business Administration (SBA) Loan. These are loans guaranteed by the Small Business Administration to encourage lending to eligible borrowers. They are a prime type of loan for small businesses and are sometimes easier to obtain than other types of loans. According to Judith Roussel of the SBA, SBA loans are an excellent choice for restaurant owners without a lot of collateral or good credit history. They can also be useful for women or minorities who need to obtain restaurant financing. The two primary SBA loans are the 7(a) and the 504, which range from $5000 to $5 million. Meet all the SBA loan types.

However, the fact remains that these loans take a lot of time to process, you will need an impressive sales record, lots of documentation about all aspects of your business, and you will need to show them that you are putting your own money into the venture. New restaurant owners are simply not able to meet these requirements and most often must turn to alternative lenders for financing. Alternative lenders will often look beyond your credit score to the business itself, while banks and larger lenders can dismiss your application instantly if you have a poor credit history.

Getting Organized as a Restaurant Owner

Owners of franchises tend to be far more successful in comparison to restaurant owners. And one of the reasons for this is that restaurant owners do not perform as much market research in comparison to franchises. They invest more money into finding the right concept and choosing the perfect location.

One thing you can do to get more organized is to write a business plan. The business plan will help you to crystallize your own thoughts with regard to the entire campaign. It does not have to be a huge 40-page document – just a 10 or 15-page plan that allows you to explore your options and see things you might otherwise miss.

Always consider your potential customers and what they are looking for. What are the demographics of people that are going to your restaurant? Are they university students? Families on holiday? Young couples, digital nomads, or people in the alternative health community? Find your target market and have a firm idea of how you are providing what they need.

A final item to keep in mind is that many restaurants fail because of intimate relationships between owners. It might seem like the ‘dream’ to many couples or friends to open a restaurant together in an exotic or local environment. But the best friends or partners can often make the very worst business relationships. Be very careful when choosing business partners.

Core Trends In The Restaurant Industry

The giant elephant in the room when it comes to hospitality trends is COVID-19. It is not merely a blip where things are going to go ‘back to normal’ after the virus ‘goes away’. People’s habits have completely changed. They are traveling less and ordering more. The restaurant industry and the wider hospitality sector has been hit particularly hard.

At the same time, savvy restaurant owners are making a killer due to Corona Virus. It’s quite shocking how many restaurants simply shut their doors instead of offering a delivery model to customer’s doorsteps. Many restaurants are doing better than before, and are still managing to take advantage of financial incentives, shutting their physical doors while remaining open for delivery. UberEats and GrubHub are certainly not complaining.

It’s safe to say that people are not as mobile anymore, and the tourism industry could take at least a couple of years to go back to where it was before the crisis (if it ever does). Many cities and states are still in lockdown and people are not as outgoing. Yet somebody needs to deliver food to their doorstep. Online marketing and promotions are more important than ever.

Sustainability remains a huge trend in the restaurant industry, and customers are growing dissatisfied with plastic all the time. You need to get creative with your packaging and provide options for the customers at checkout. Bamboo straws are better than plastic, and Finimpact’s SMBs survival guide for the COVID-19 era provides reusable options as much as possible. (Starbucks is now offering discounts for customers who bring in their own cup)

Kitchens should be allergy-free as much as possible and deploy zero-waste policies. Customers look to see this – they are becoming far more eco-conscious. Make sure to advertise your environmentally friendly policies for them. With increasing numbers of vegans and vegetarians, you might want to separate your menu into these categories.


Regardless of the statistics and your personal situation, one thing that is similar across all industries is finance. Having finance to start and maintain a company is always crucial and starting a small business can be incredibly difficult without having to worry about cash flow problems. If you think you have thought of every single expense, chances are you have not. The forms of finance you choose, along with which lender, could easily decide the success or failure of your small restaurant. While securing restaurant funding can be difficult as many institutions have a false perception of the risk involved, we at Finimpact like to look at the actual data. Your application will not find any discrimination here.

Find the right funding for your restaurant

Daniel Lewis
Daniel Lewis is an MBA accredited investment professional who wants to assist small business owners to gain access to finance. After going through many channels for funding, Lewis has found that getting the first loan right is vitally important for future success.